Our approach to competition

Parliament has given us a single strategic objective – to ensure that relevant markets function well – and 3 operational objectives. These are to: 

• protect consumers[1]
• protect the integrity of the UK financial system[2] 
• promote effective competition in the interests of consumers[3]

Since August 2023, we have a secondary objective to facilitate the international competitiveness and growth of the UK economy in the medium to long term. This objective applies only when we advance our existing objectives and only to our general functions, which include rule-making, giving general guidance and determining general policies. 

International competitiveness measures how well the UK economy as a whole: 

• achieves sustainable, positive economic outcomes
• attracts international businesses to the UK
• enables UK-based firms to compete effectively in international markets

Effective competition in the UK’s financial services markets helps create stronger firms and makes the UK an attractive market, supporting international competitiveness. 

We also have a competition duty. This states that we must, so far as is compatible with our consumer protection and integrity objectives, carry out our general functions in a way which promotes effective competition in consumers’ interests.

In making policy, we normally choose the most pro-competitive measure available to us as long as it’s compatible with our duties as a whole. So competition is an integral part of our thinking. This ensures that we: 

• consider the impact on competition when we carry out our general functions to advance our consumer protection or integrity objectives 
• actively investigate markets through market studies and reviews to make sure that competition is working well for consumer support new entry and innovation  

Our objective is to promote competition in the interests of consumers, not for its own sake.

We know that, in some cases, increasing competitive pressure in already poorly performing markets can make matters worse.

We also know that strengthening competition is not an easy process.  

We do 3 things to advance our competition objective. 

• We look at market structure and dynamics through our market studies, intervening where necessary to improve consumer outcomes.
• We investigate anti-competitive behaviour under the Competition Act 1998 (CA98).  
• We implement regulation with the aim of supporting competition in consumers’ interests. 

Our competition work is not just about lower prices or more switching. 

One aspect is clearly about supporting consumer choice, including the choice to move from an unsatisfactory supplier to a better one. Importantly, this applies pressure on firms who know their customers can easily switch if their products and services are not good enough.  

But our work is also about keeping markets open to entry and innovation, tackling anti- competitive conduct and intervening to ensure competitive forces drive good outcomes for consumers. It can also be about protecting consumers when markets fail them. 

As a competition regulator our primary role is not to regulate prices or profitability directly. Our Consumer Duty[4] sets out our expectations of providing fair value to consumers. In most instances we aim to remedy the underlying market failures or root causes of harm. However, we may sometimes need to intervene directly to protect consumers, such as on product standards or, more rarely, on price. 

Check the rules on your duty to consumers[4]

Our regulatory remit covers thousands of products whose prices are rightly determined by market forces and require no regulatory action. However, there may be situations where we do not find fair value and we need to intervene on a specific aspect of price such as an exit fee or surcharge. 

Even more rarely, we may intervene on overall price. We typically do this in response to acute concerns about the lack of competitive pressure, as we did for home and motor insurance renewals. 

Our role, even when applying a price control, is not to regulate the returns a firm makes. However, we often look at pricing and profitability as important evidence in our market studies to help us understand market dynamics. 

An important aspect of our competition work is working with new and innovative players whose business models may test the boundaries of our current regulations.

We need to understand how and when regulation can inhibit new entry and innovation, so that our regulation evolves with financial services rather than holding them back.

Find out more on our Innovation Hub[5]

Consumers need to be able to trust that markets will work well for them.  

Knowing that firms are well-regulated means they can make confident choices about the products they buy. In turn, consumers’ choices motivate firms to compete effectively, innovate and grow. 

However, regulation that protects consumers, safeguards market integrity and promotes financial stability can sometimes stifle competition by creating barriers to entry or limiting innovation. For example, having to hold minimum levels of capital can make it harder for new firms to enter the market.  

Our actions need to strike a balance between encouraging competition and innovation and advancing our other operational objectives. Then, as a secondary objective, we will also seek to facilitate the medium to long term growth and international competitiveness of the UK economy.  

Find out more about our objectives[6]

The FCA is one of several regulators collectively tasked with managing the balance between competition and financial stability. The Prudential Regulation Authority (PRA) and the Bank of England lead on financial stability issues. The PRA also has a secondary competition objective.  

Below we set out what a well-functioning market looks like, where we can see competition working in the interests of consumers at all levels of the supply chain.

If there is weak competition at any level, it is typically the consumer that ends up paying as firms pass on higher costs. 

In all markets, we want consumers to be able to buy the products and services they need, sold to them in a way that is clear, fair and not misleading.

We also want products and services that meet consumers’ needs and provide fair value. 

In addition, where competition is working well, we will particularly see: 

• confident consumers able to exercise choice; this requires consumers to have access to the information and support they need, and requires firms to present choices in a way that is understandable to consumers and does not unfairly exploit behavioural biases 
• firms winning business by making the best offer to consumers and delivering it, not by colluding with each other or excluding rivals 
• firms that can enter and grow without facing undue barriers or costs 
• firms that have the freedom and flexibility to develop new products and services and a regulatory framework that adapts to keep pace with change 
• firms treating customers fairly, knowing that unfair treatment will have both commercial and regulatory consequences 

Much of our competition work is carried out under the Financial Services and Markets Act 2000 (FSMA).

We can investigate markets where competition may not be working well for consumers, and intervene appropriately, such as by making rules.

We can only use these powers for the firms and activities we regulate.

Joint powers

Since 2015, we have had concurrent competition powers with the Competition and Markets Authority (CMA) over the provision of financial services in the UK and, since 2019, for claims management services in Great Britain. This means we also have powers under the Enterprise Act 2002 to investigate whether any market for financial services is working well, expanding our powers of investigation beyond those firms and activities that we regulate. We can also make a market investigation reference (MIR) to the CMA to investigate a particular market or sector in more depth.

Only the CMA has powers to decide whether mergers should be prohibited on competition grounds, but we may give the CMA information about the firms or markets affected by a proposed merger. 

Under our concurrent competition powers we also have powers to investigate and enforce against any breach of the Competition Act 1998 (CA98) in financial services.

Read our Memorandum of Understanding with the CMA[7] in relation to our competition powers.

Only one authority can formally investigate or take enforcement action on a specific case at any one time. We discuss with the CMA who is best placed to do this to agree which authority the case should be allocated to, but ultimately this is the CMA’s decision. 

Digital Markets Competition and Consumers Act 2024

The Digital Markets Competition and Consumers Act 2024 established a new regime for regulating competition in digital markets, overseen by the CMA’s Digital Markets Unit.

On 19 December 2024, the CMA published a joint Memorandum of Understanding[8] outlining how we will implement the Act's requirements for coordination between us. 

These requirements include the CMA consulting us on certain significant functions under the regime in connection with financial services and claims management services, but only if the benefits of consultation outweigh the burden. It also allows us to recommend that the CMA exercises these functions. The regime supports our commitment to promote effective competition and shape digital markets to achieve good outcomes for consumers and markets. 

Anti-competitive behaviour can involve firms deliberately reducing competitive pressure from themselves. For example, by trying to unlawfully cooperate with or exclude rivals. It can also include dominant firms directly exploiting customers, for example, by charging far too high a price. CA98 prohibits these actions and enforcing this legislation is an important part of our competition remit. 

There are 2 broad prohibitions in competition law.

1. Firms must not enter into anti-competitive agreements. Cartels and related anti-competitive behaviour can lead to higher prices, lower quality and generally poorer outcomes for consumers – often on a very significant scale.  
2. A firm with substantial market power (a firm that is ‘dominant’ in a market) must not abuse that position by exploiting its customers or excluding its rivals. Most financial services markets have many firms in them, so dominance is not an issue. However, there are some markets where there may be one dominant supplier (which is not in itself a problem) who may abuse that position (which is). 

The CMA estimated that its interventions under competition law saved consumers at least £397m during financial years 2020/21 to 2022/23. These figures are based on expected price reductions that are likely to follow the break-up of a cartel or the termination of other unlawful practices (see the CMA’s Impact Assessment Report 2023[9]). 

Sometimes we get direct intelligence about anti-competitive behaviour, such as leniency applications, Principle 11 notifications, complaints and whistleblowing (see Chapter 3 of FG15/8[10]).  

In the diagnostic stage of our work, we set out our ‘theories of harm’ based on indicators of the potential harm we have identified.  

A theory of harm is a hypothesis of how competition may not be working in consumers’ interests, and how consumers may be suffering as a result.  

Our diagnostic work focuses on gathering and analysing evidence to test these hypotheses. 

This work may involve a: 

• call for input or discussion paper 
• market study 
• investigation under the Competition Act 1998 (CA98)

If we decide the issue is a priority, we can start a call for input or market study. We make it clear that this does not imply that there has been misconduct by individual firms or that we will necessarily intervene. 

However, we can only start a CA98 investigation if we have evidence that firms have behaved in a way that gives us reasonable grounds to suspect a breach of the law.

For more detail, read our guidance on our powers and procedures under the Competition Act 1998[11].  

Calls for input help us better understand emerging issues in a market and the context, cause, scale and type of harm we want to prevent.

Our calls for input are public invitations for views, evidence, examples and suggestions from all interested stakeholders.

Rather than requesting specific information or data, we use calls for input as a less prescriptive method for gathering information. 

We are more likely to issue a call for input when: 

• we are looking at markets where we do not routinely gather the information needed to start a market study 
• the scale of potential harm is significant but our theories of harm are less well developed 
• we are looking at a number of interrelated markets 
• the market is emerging or changing rapidly 

The information we get from a call for input may lead us to:

• launch a market study
• propose remedies, or
• to take no further action

See our calls for input[12]

Market studies[13] are in-depth, evidence-driven investigations, typically taking 12 to 18 months to complete.

A market study defines a number of questions to explore or theories of harm (as discussed under 'Diagnostic tools' above) to test.

We publish the questions we want to answer in our terms of reference at the start of every market study.

The set of questions or theories of harm will focus primarily on how competition works in a market but – since our objectives are interrelated – may also cover how competitive dynamics affect consumer protection or market integrity.

We then engage in extensive research, data-gathering and consultation with firms, consumers and other stakeholders such as charities and trade bodies. While this demands significant resources from both the FCA and other stakeholders, especially firms, market studies can result in far-reaching changes across markets. 

This means it is important that we understand all stakeholder perspectives, that our conclusions are based on robust evidence and that our proposals reflect reality. 

We prioritise our market studies work[14] alongside our other interventions as part of our annual business planning. 

We decide on a case-by-case basis whether to open a market study and take account of several factors, including the following. 

• The likely impact of any intervention in the market. This will be a combination of the scale of harm and/or market size, and the potential impact of intervening to address the issue. We will consider, for example, whether market characteristics indicate low levels of competitive pressure, or whether the market size or type of customer indicates harm of a significant scale or severity. 
• The scope for us to intervene effectively (taking into account, for example, domestic versus international issues). 
• The likelihood of a successful outcome (in terms of being able to intervene to make the market work better for consumers).
• Whether we can better address the issue by another form of intervention (such as enforcement, including under the CA98, or supervisory action), or by another authority. 

Indicators of potential harm can help us prioritise. However, we often need to do more in-depth work to investigate the extent of actual harm and diagnose the cause. 

Once we have gathered our evidence, we will usually publish an interim report. This outlines our preliminary findings and possible solutions for addressing any concerns.

Through open consultation[15], we then seek feedback on both the findings and any of our proposed solutions.

After considering this feedback and undertaking any further work it prompts, we publish a final report which sets out our conclusions and the way forward on solutions or ‘remedies’.  

A market study is an analysis of a market (which may include both regulated and non-regulated activities), not an investigation into the behaviour of specific firms.

Since it is usually not cost-effective to ask all firms in a market to supply data, we typically select a sample of firms: 

• who, together, provide a representative picture of the market, and 
• whose combined market share represents a significant proportion of the market 

These samples generally include the largest firms, but we also want to understand the experience of smaller firms so will include some in the sample. We aim to be proportionate in our data requests and can tailor requests according to the size of a firm.

Being selected as part of a sample for a market study does not imply a firm has breached our rules or behaved badly. 

Often we do not need to use our formal information-gathering powers to get the data we need, though we can use them and have done so in the past at firms’ request. 

We aim to be as transparent as possible about the basis for our conclusions, to ensure we can have a meaningful dialogue with stakeholders when we publish our interim report. However, we cannot publish certain data (such as personal and commercially sensitive data). We publish data when and as the law allows us to do so. 

We have published detailed guidance on our competition law powers and procedures (see FG15/8[13]).

The stages of an investigation consist of:

• fact-finding and analysis
• provisional findings
• a final decision

We will discuss with the Competition Markets Authority (CMA) and any other relevant concurrent regulator, whether we are the authority that should take a case forward. If so, we can:

• use powers to request information, such as documents and data
• conduct compulsory interviews and site visits

If, after investigation, we come to the provisional view that competition law has been infringed, we will issue a ‘statement of objections’ to the firm. This sets out the:

• applicable law
• evidence
• our analysis
• our proposed decision

Firms can inspect copies of the relevant documents we disclose and can make both written and oral submissions to our Competition Decisions Committee[15]. This Committee will take a final decision and may impose financial penalties. 

We have a statutory duty to consider whether it would be more appropriate to use our CA98 powers before using certain Financial Services and Markets Act 2000 (FSMA) powers (for example certain supervisory powers under FSMA), and will decide depending on the facts of the case (see FG15/8[18]). 

Some breaches of competition law may also breach authorised firms’ obligations under FSMA or other legislation. In these instances, we may take enforcement action under our other powers as well as, or instead of, CA98.

We decide which of our powers are most appropriate on a case-by-case basis. 

The type of action we take to respond to competition problems differs between:

•  investigations under the Competition Act 1998 (CA98)
• market studies

After a CA98 investigation we may take action to punish individual firms who have breached the law, both to stop that behaviour and as deterrence to other firms.

After a market study, we typically make rules or take other action to make the market work better in the future, although we will take steps to address past misconduct if we find it. 

Under CA98 we can investigate firms when we have reason to believe they have breached competition law in the provision of financial services or claims management services.

Based on our investigation, we may: 

• issue an infringement decision, which may involve imposing penalties or other directions on firms; we will issue an infringement decision after we have issued a statement of objections and received the firm’s representations; we publish a summary, and a non-confidential version of the infringement decision
• accept commitments from firms that they will change their conduct in a way we think addresses our competition concerns
• publish a ‘no grounds for action’ decision if we have not found sufficient evidence of an infringement
• close our investigation on the grounds of our priorities at any time

In some cases, we may decide it is appropriate to deal with suspected infringements of competition law without formal enforcement action.

We may alert businesses to possible concerns, for example by issuing advisory or on notice letters.

Advisory letters are largely educational, while on notice letters ask the firm to tell us what it has done or will do in order to address our concerns. 

We will consider taking action following a market study if our analysis identifies competition problems or other issues in the market that are leading to harm. However, we will only intervene where we judge this will be beneficial and proportionate to the concerns we have identified. 

We design remedies on a case-by-case basis.

• If possible, we aim to address the root cause of consumer harm by improving how competition works in the market, and so improve the consumer outcomes it delivers.
• We may also seek to protect consumers directly. 

In either case we consider not only the direct impact of our intervention, but also the likely response of both firms and consumers – the market dynamics. The scale and scope of our intervention is proportionate to the harm we have identified. When considering policy options we will look at how potential remedies could facilitate international competitiveness and the growth of the UK economy, in line with our secondary international competitiveness objective[14].    

The package of remedies we implement can include the following:

When thinking about remedies we need to recognise the limits of relying on consumer engagement and active choice to drive good outcomes.  

Successful remedies make it easier for consumers to make choices and bolster incentives for firms to change because of the threat of switching or wider reputational concerns.  

In some markets, the active choices of the minority benefit the (less active) majority. However, in other markets this is not the case and we may need to act to protect those consumers. 

Behavioural economics informs how we regulate. This is extremely relevant to the way we design remedies in our competition work. 

Competition is most effective when consumers can judge what products offer the best value and reward firms with their business.

This requires us, for example, to:

• make sure that firms supply customers with clear and accurate information
• be realistic about how consumers assess and compare products
• recognise ‘behavioural biases’
• ensure our remedies are designed for real world behaviour rather than textbook rationality

We can use ‘nudges’ to prompt engagement at crucial moments. We can also regulate how firms present choices to consumers.

We use consumer research, including lab and field trials[15], to test how our remedies actually influence consumer behaviour. 

While we regulate on behalf of all consumers, we know that different consumers will be affected to different extents by our measures.

Trials can help us understand the impact of proposed remedies on different consumer segments. 

Consumers will also have different needs, and some may be more vulnerable than others, perhaps because of their circumstances or their financial capability.

We may prioritise a market study where vulnerable consumers may be at particular risk. We must also consider how effectively a remedy works in practice for vulnerable consumers. 

Small firms can play a vital role in financial markets, offering competition and innovation in markets and choice to consumers.

But we know that many smaller firms may face barriers to entry and expansion that can arise from the conduct of incumbents or sometimes from regulation itself. 

We can potentially tackle these issues by using our competition powers and we encourage small firms to notify us of any barriers that they face.  

In terms of regulation, we continue to work with firms to understand how we can evolve our regulatory approach to support entry and expansion. 

See more under ‘Supporting Innovation’[6]

Small and medium-sized enterprises (SMEs) are also significant consumers of financial services and products. Regulating on behalf of all consumers includes making sure competition works well for relevant SMEs. 

We are keen to hear from all users of financial services, including SMEs, where they feel markets are not working well or firms are not behaving competitively, in ways that prevent them from getting the products or services that best suit their needs. 

Email: [email protected]

We always aim to design packages of remedies that: 

• address consumer harm
• are proportionate
• are realistic in terms of likely response from both firms and consumers

For rule changes and guidance, in particular, cost-benefit analysis and stakeholder consultation help with this. 

However, we can never be sure that our remedies will work exactly as we expect. So testing the effectiveness of our interventions after the fact is critical.

Evaluation helps ensure that we: 

• are transparent about the success or failure of our remedies
• change ineffective remedies
• demonstrate and, where possible, measure the public value of successful remedies
• get better at designing remedies in the future

However, post-implementation analysis is rarely straightforward.

The dynamism and complexity of financial markets mean it is often difficult to pin down the response of firms or consumers to a particular intervention, or measure the scale of the effects. We therefore conduct detailed evaluations only for our most significant interventions.  

Find more detail on our evaluations and other tools we can use in our Rule Review Framework[16].  

We will continue to develop our key indicators of competition in markets, and to improve the market data we collect to allow us to monitor this in real time. 

These data sets range from traditional measures of competitive pressure, such as market share and profit margin, to our unique data sets, such as data on consumer complaints.